Business context and reporting period
The Manitowoc Company, Inc. designs, manufactures, markets and supports cranes and related lifting solutions, with businesses in the Americas, Europe and Africa (EURAF), and the Middle East and Asia Pacific (MEAP). Its aftermarket parts and services support an installed base of approximately 155,000 cranes. This summary covers the unaudited quarter ended March 31, 2022; comparisons are with the quarter ended March 31, 2021 unless stated otherwise. Amounts are in millions of dollars except per-share data.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $459.0 | $354.3 |
| Gross profit / margin | $85.0 / 18.5% | $68.4 / 19.3% |
| Operating income | $17.6 | $10.7 |
| Net income (loss) | $3.1 | $(3.1) |
| Diluted EPS | $0.09 | $(0.09) |
| Operating cash flow | $5.6 | $40.8 |
| Capital expenditures | $8.7 | $8.0 |
| Free cash flow | $(3.1) | $32.8 |
- Sales increased 29.6%, mainly on higher crane shipments, pricing and acquired businesses. Gross profit rose, but margin fell 0.8 percentage points as material and transportation costs increased. Operating income improved; net income also benefited from lower other expense.
- Orders were $481.5, up 1.7%. Backlog was $1,033.4 at quarter-end, up 56.0% year over year and 2.2% from December 31, 2021. Management cited strong demand and delayed shipments amid supply constraints.
- Segment sales and operating income: Americas $215.9 and $5.8, versus $140.1 and $7.0; EURAF $179.2 and $11.4, versus $154.5 and $6.3; MEAP $63.9 and $13.1, versus $59.7 and $6.8. Americas income declined amid acquisition-related depreciation and higher labor, material and transportation costs. MEAP income included a $4.8 recovery of a previously written-off note.
- Cash and equivalents were $51.6, down from $75.4 at year-end 2021. Operating cash flow was pressured principally by a $69.4 inventory increase, partly offset by a $54.6 increase in accounts payable. The company also sold $33.3 of receivables through factoring programs during the quarter.
- Total debt was $389.2, including $80.0 outstanding on the asset-based revolver and $300.0 of 9% second-lien notes due 2026. Total reported liquidity was $267.3. The company said it was compliant with debt covenants and expected to remain compliant over the next 12 months.
Material changes, outlook and risks
- COVID-related lockdowns in China, supply-chain constraints, labor and logistics challenges constrained production and shipments. Russia’s invasion of Ukraine and related sanctions added pressure to European energy, component and commodity costs; management warned these costs could weigh on EURAF performance in the second half of 2022.
- The company cancelled $21.0 of orders during Q1 related to the Russia-Ukraine conflict. Foreign-exchange movements also reduced reported sales, gross profit and backlog. Management is seeking alternative sources for materials and components.
- No specific revenue or earnings guidance is provided in the filing. Management believes liquidity and expected operating cash flows can cover working capital, capital expenditures and other operating needs for the subsequent 12 months. Current restructuring activities are expected to be substantially completed in the second half of 2022, with an immaterial remaining impact.
- An ongoing U.S. EPA/Department of Justice matter concerns engines used in cranes and participation in the emissions transition program. The company recorded a $14.9 liability; it calculated potential statutory maximum Clean Air Act penalties of approximately $174.0, while stating it believes it has strong defenses. Final resolution could materially affect financial condition, results or cash flows.
- Other exposures include product-liability and warranty claims, buyback commitments and guarantees. Warranty reserves were $59.4; product-liability reserves were $8.4. The company said the ultimate resolution of ordinary-course legal matters was not expected to materially adversely affect results, but estimates may change.
- Non-GAAP adjusted EBITDA was $31.2 versus $21.1; it included adjustments for items such as acquisition costs, rental-fleet fair-value step-up charges and the Dong Yue note recovery. Review the company’s reconciliation and definitions when comparing performance.
Important facts for investors to verify
- Whether the sizable backlog converts to shipments and revenue, given supply constraints, order cancellations and the company’s non-GAAP backlog methodology.
- Whether rising materials, transport, labor and European energy costs continue to compress margins, and whether pricing offsets them.
- Working-capital trends, especially inventory growth, cash generation and reliance on receivables factoring.
- Available revolver capacity, covenant compliance and the cost and terms of debt, including the 9% notes due 2026.
- Updates to the EPA/DOJ matter, recorded liability and potential range of outcomes, as well as warranty and other claim reserves.
- The contribution and integration performance of the Aspen and H&E acquisitions, and the extent to which reported results include one-time items.